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Buy Kalpataru Power Transmission Ltd For Target Rs.500

* KPTL (Standalone) reported a 14% YoY decline in revenue in Q4FY22 and a ~200bps correction in EBITDAM, due to lower dispatch in T&D, weak inflows in H1FY22 and slow progress in few oil & gas pipeline projects. For FY22, revenue declined 8% YoY, while EBITDAM fell to 9.2% from 10.5% YoY, affected by higher commodity and freight prices.

* The order inflow of Rs81.6bn was lower by 3% YoY. The order book stood at Rs157bn, with international T&D accounting for ~61% of the book. In FY23 so far, the company has bagged orders worth Rs16.3bn and has emerged L1 in orders worth ~Rs15bn.

* FY23 is expected to see revenue growth of 10-15% and EBITDAM of 9% as per management. Inflows are expected to be in the Rs100-110bn range. Net debt has fallen from Rs7.7bn in FY21 to Rs4.1bn FY22. We maintain Buy with a Mar’23 TP of Rs500 (earlier Rs490). The merger with JMC Projects will have financial and operational synergy. Relative price chart Source: Bloomberg This report is solely produced by Emkay Global. The following person(s) are responsible for the production of the recommendation: Abhineet Anand abhineet.anand@emkayglobal.com +91 22 6624 2466 Abhishek Mody abhishek.mody@emkayglobal.com +91 22 6624 2491 -30 -20 -10 0 10 20 300 340 380 420 460 500 May-21 Jul-21 Sep-21Nov-21 Jan-22 Mar-22May-22 Rs % Kalpataru Power (LHS) Rel to Nifty (RHS)

* KPTL results highlights: A lower order book and delays in dispatch led to an 8% revenue decline in FY22, with a margin decline of ~130bps. KPTL has guided for 10-15% revenue growth, ~9% EBITDAM and Rs100-110bn order inflows for FY23.

* JMC Projects results highlights: JMC Projects delivered 45% revenue growth on the back of a very strong order book (Book-to-bill of ~4x), better than management’s guidance of 20% growth. EBITDAM at ~8% was lower by ~100bps. With order inflows of ~Rs101bn, its order book has swelled to Rs171bn, with urban infra and water contributing ~53% of the book. Private Buildings & Factories accounted for 39% of the book. The company has guided for 15-20% revenue growth, ~9% EBITDAM and Rs100-110bn order inflow for FY23. Within road projects, WEPL restructuring and VEPL refinancing could happen in FY23. Post this, overall burden of loss from road projects would come down. For FY23, management expects Rs700-800mn of support to the road entities.

* Large projects: KPTL has been bidding for large projects in the recent past and recently bagged a large HVDC order worth Rs32bn. The company, including JMC, is eyeing large orders across various segments it operates in.

* Merger benefits: The merger of KPTL with JMC is expected to bring in financial and operational benefits, which will lead to better profitability in medium term.

* Valuation and Outlook: We cut our FY23E/FY24E EPS by 6.7%/3.7% as we now factor in lower EBITDAM. Any correction in commodity prices can lead to an upgrade, though we do not factor it in presently amid volatility. There has been an improvement in net debt (FY22: Rs4.1bn vs. Rs7.7bn in FY21) and it is expected to come down further by FY23- end. We have marginally raised our Mar’23 TP to Rs500 (Rs490 earlier) to factor in higher cash on books. We believe the merged entity can cater to a larger EPC market.

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